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Investment in Unconsolidated Joint Ventures | 9 Months Ended
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Sep. 30, 2017
Investment in Unconsolidated Joint Ventures |
Investment in Unconsolidated Joint Ventures | 3.Investment in Unconsolidated Joint Ventures Our investment in unconsolidated joint ventures consists of a preferred equity investment and two mezzanine loans which are accounted for as an unconsolidated joint venture in accordance with GAAP. Preferred Equity Investment: We provided a total preferred capital contribution commitment of $25,650,000 to an entity (or the JV) that owns four properties in Arizona that provides independent, assisted living and memory care services. The JV is intended to be self-financing and other than our preferred capital contributions, we are not required to provide any direct support and we are not entitled to share in the JV’s earnings or losses. As a result, we believe our maximum exposure to loss related to our investment in the JV would be limited to our preferred capital contributions plus any unpaid accrued preferred return. We have concluded that the JV meets the accounting criteria to be considered a variable interest entity (or VIE). However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for our JV investment using the equity method. As the preferred member of the JV, we are entitled to receive a 15% preferred return, a portion of which is paid in cash and a portion of which is deferred. The unpaid preferred return will be accrued to the extent of the common member’s capital account balance in the underlying JV. Since the common member’s capital account balance is currently $0, we did not record the deferred portion of the preferred return during the nine months ended September 30, 2017. During the nine months ended September 30, 2017 and 2016, we funded $1,100,000 and $481,000, respectively, of the preferred capital contribution. Accordingly, we have a remaining preferred capital contribution commitment of $2,636,000. At September 30, 2017 and December 31, 2016, our preferred equity investment was $23,421,000 and $22,321,000, respectively. During the nine months ended September 30, 2017 and 2016, we recognized $1,134,000 and $839,000, respectively, in income and received $1,020,000 and $1,409,000, respectively, of cash interest from our preferred equity investment in the JV. Mezzanine Loans: During 2016, we entered into a $3,400,000 seven-year term mezzanine loan commitment for the development of a 127-unit senior housing community in Florida which will provide a combination of assisted living, memory care and independent living services. The loan agreement provides us a 15% preferred return, a portion of which is paid in cash and the remaining unpaid portion is deferred and subsequently paid to us at times set forth in the loan agreement. During 2017, we funded $2,747,000 under this mezzanine loan and withheld $653,000 which will be applied to interest. During the nine months ended September 30, 2017, we recognized $118,000 in income from unconsolidated joint ventures related to this loan. We also have a $2,900,000 mezzanine loan to develop a 99-unit senior housing community in Florida which will provide a combination of assisted living, memory care and independent living services. The loan bears interest at 10% and will escalate to 15%. Interest payments were deferred and no interest was recorded between the time of the commencement of the loan and February 1, 2017, the first payment date per the terms of the loan agreement. We used the effective interest method to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance. During the nine months ended September 30, 2017, we recognized $383,000 in income from unconsolidated joint ventures and received $216,000 of cash interest related to this loan. At September 30, 2017 and December 31, 2016, the outstanding balance under this loan was $3,041,000 and $2,900,000, respectively.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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